Since June 30, 2020, broker-dealers have been required to act in your best interest when recommending securities and investment strategies. This standard — Securities and Exchange Commission (SEC) Regulation Best Interest, 17 C.F.R. § 240.15l-1 (2020) (Reg BI) — was designed to protect retail investors from unsuitable recommendations and undisclosed conflicts of interest. Despite that protection, violations have become one of the fastest-growing categories of investor claims before Financial Industry Regulatory Authority (FINRA) arbitration panels.
If your broker recommended investments that were unsuitable for your financial situation, failed to disclose material conflicts of interest, prioritized their own commissions over your best interest, or operated without adequate supervisory procedures, you may have grounds for a Reg BI violation claim under one or more of its four obligations: disclosure, care, conflict of interest, and compliance. While Reg BI does not itself create a private right of action — the SEC’s adopting release expressly declined to do so, see SEC Release No. 34-86031, 84 Fed. Reg. 33318, 33397 (July 12, 2019) — violations of its obligations support investor claims in FINRA arbitration, typically brought under FINRA Rules 2010, 2111, and 3110. At Varnavides Law, we pursue FINRA arbitration claims against broker-dealers who violate Reg BI, helping investors recover losses caused by broker misconduct.
Key Takeaways
- Reg BI arbitration filings surged from 216 claims in 2022 to 408 in 2023 — nearly doubling year-over-year — and reached 528 by year-end 2025, ranking 9th among FINRA arbitration controversy types
- FINRA’s 2025 Annual Regulatory Oversight Report identified Reg BI compliance as an examination priority, with enforcement concentrated on Care Obligation and Disclosure Obligation failures
- The regulation imposes four obligations on brokers: disclosure, care, conflict of interest, and compliance
- Care obligation violations account for the majority of Reg BI enforcement actions
- FINRA arbitration provides a forum to seek recovery of losses caused by conduct that violates Reg BI’s obligations
What Is SEC Reg BI?
Reg BI is a rule adopted by the SEC that requires broker-dealers and their associated persons to act in the best interest of retail customers when making investment recommendations. The rule became effective on June 30, 2020, and applies to all recommendations involving securities transactions or investment strategies.
Prior to Reg BI, brokers were only required to meet a “suitability” standard, which meant they simply needed a reasonable basis to believe an investment was suitable for the customer. This lower standard allowed brokers to recommend investments that generated higher commissions for themselves, even when comparable lower-cost alternatives existed.
According to the SEC’s Reg BI compliance guide, the regulation was designed to address this gap by requiring brokers to prioritize client interests over their own financial interests when making recommendations.
The Four Obligations Under Reg BI
Reg BI establishes four component obligations that broker-dealers must satisfy. Failure to meet any one of these obligations constitutes a Reg BI violation.
Disclosure Obligation
Broker-dealers must provide written disclosure of all material facts about the customer relationship, including:
- The capacity in which they are acting (broker vs. adviser)
- Material fees and costs
- Type and scope of services provided
- All material conflicts of interest
Care Obligation
The Care Obligation requires brokers to act in the customer’s best interest by exercising reasonable diligence, care, and skill. Brokers must:
- Understand the potential risks and rewards
- Have a reasonable basis for the recommendation
- Consider reasonable alternatives
- Not place their interest ahead of the customer’s
Conflict of Interest Obligation
Firms must establish written policies to:
- Identify and disclose conflicts of interest
- Address conflicts from proprietary products
- Eliminate sales contests tied to specific securities
- Mitigate compensation-based conflicts
Compliance Obligation
Broker-dealers must establish, maintain, and enforce:
- Written policies and procedures
- Supervisory systems for compliance
- Training programs for associated persons
- Record-keeping requirements
How Reg BI Differs From Fiduciary Duty
Reg BI significantly enhanced the standard of conduct for broker-dealers, but the SEC adopted it as a separate standard — drawing from fiduciary principles but applied at the time of recommendation, distinct from the ongoing fiduciary duty owed by investment advisers under the Investment Advisers Act of 1940. Understanding this distinction is critical for investors evaluating their legal options.
| Standard | Applies To | Key Requirements | Ongoing Duty |
|---|---|---|---|
| Old Suitability Standard | Broker-dealers (pre-2020) | Reasonable basis that investment is suitable | At time of recommendation only |
| Reg BI Best Interest | Broker-dealers (since June 2020) | Act in best interest, four component obligations | At time of recommendation |
| Fiduciary Duty | Investment advisers (RIAs) | Duty of care and duty of loyalty | Continuous throughout relationship |
The fiduciary standard under the Investment Advisers Act of 1940 requires investment advisers to act in the best interest of clients at all times, including an ongoing duty to monitor accounts and make adjustments as circumstances change. Reg BI applies only at the time of the recommendation.
Why This Matters: Many financial professionals are dually registered as both broker-dealers and investment advisers. When your representative is wearing their “broker hat” versus their “adviser hat” affects which standard applies to their conduct, which can create confusion about your legal rights.
Common Reg BI Violations
Since Reg BI took effect, FINRA and the SEC have brought dozens of enforcement actions identifying specific violation patterns. According to the FINRA 2025 Regulatory Oversight Report, the majority of Reg BI cases involve care obligation violations.
Care Obligation Violations
The most common Reg BI violations involve failures to exercise reasonable care when making recommendations:
- Excessive trading (churning): Recommending frequent trades that generate commissions but do not benefit the customer
- Unsuitable investment recommendations: Recommending products that do not match the customer’s investment profile, risk tolerance, or financial needs
- Complex product sales: Recommending variable annuities, options strategies, or other complex products without a reasonable basis
- Failure to consider alternatives: Not evaluating reasonably available lower-cost or more suitable alternatives
- Concentration risk: Recommending excessive concentration in a single security or sector
Disclosure Obligation Violations
- Hidden compensation: Failing to disclose that certain products pay higher commissions
- Inadequate Form CRS: Providing relationship summaries that do not accurately describe services and conflicts
- Undisclosed dual registration: Not clarifying whether acting as broker or adviser
Conflict of Interest Violations
- Proprietary product bias: Recommending firm-owned products over superior third-party alternatives
- Revenue sharing arrangements: Favoring products from companies that pay the firm additional compensation
- Sales contests: Participating in competitions that incentivize sales of specific securities
The Rapid Rise in Reg BI Claims
Reg BI violations have become one of the fastest-growing categories of investor claims. According to FINRA dispute resolution statistics, Reg BI arbitration filings grew from 216 claims in 2022 to 408 claims in 2023 — an ~89% year-over-year increase, nearly doubling — and reached 528 year-end filings by 2025.
By 2025, Reg BI had become the 9th most common controversy type in FINRA arbitration, and enforcement continues to accelerate. According to the FINRA 2025 Annual Regulatory Oversight Report, Reg BI compliance — particularly for complex products — was identified as an examination priority, with ongoing enforcement concentrated on Care Obligation and Disclosure Obligation failures.
2022
216 Reg BI arbitration claims filed
2023
408 Reg BI arbitration claims filed (~89% year-over-year increase)
2025
528 Reg BI arbitration claims filed; Reg BI identified as a FINRA examination priority
This surge in claims reflects both increased regulatory scrutiny and greater investor awareness of their rights under Reg BI. For investors who suffered losses due to unsuitable recommendations made after June 30, 2020, Reg BI provides a powerful legal framework for seeking recovery.
Recent Reg BI Enforcement Actions
Understanding recent enforcement cases helps illustrate how regulators interpret and enforce Reg BI obligations.
Western International Securities — SEC’s Inaugural Reg BI Enforcement (2022–2024): In June 2022, the SEC brought its first-ever Reg BI enforcement action, alleging that Western International Securities and five registered representatives violated Reg BI’s Care Obligation by recommending GWG L Bonds — illiquid, high-yield bonds — to retail investors, including retirees, without a reasonable basis that the recommendations were in customers’ best interest. The case settled in July 2024 for $34,468 in disgorgement plus prejudgment interest and a $160,000 civil penalty. In a separate FINRA action the same month, FINRA fined Western $475,000 and ordered more than $1 million in restitution for supervisory failures in actively-traded accounts under FINRA Rules 3110 and 2010 — a distinct action from the SEC’s Reg BI case. The cases together established that Reg BI’s Care Obligation extends to complex, illiquid product recommendations, not merely trading-frequency analysis.
Key enforcement themes identified by FINRA include:
- Variable annuity exchanges: Recommending customers surrender existing annuities to purchase replacement products without proper analysis of costs and benefits
- Excessive trading: Recommendations that generate substantial commissions while providing little or no benefit to the customer
- High-cost products: Recommending higher-fee share classes when substantially equivalent lower-cost alternatives were available
- Inadequate supervision: Firms failing to establish and enforce compliance systems that detect potential Reg BI violations
Variable Annuities and Complex Products
Variable annuities and other complex products receive particular scrutiny under Reg BI. These products often carry significant fees, surrender charges, and risks that may not be appropriate for all investors.
FINRA Rule 2330 (Members’ Responsibilities Regarding Deferred Variable Annuities) imposes additional requirements for variable annuity recommendations, and the FINRA 2025 Regulatory Oversight Report specifically addresses compliance failures in this area:
- Recommending variable annuity exchanges without reasonable basis to believe the exchange is in the customer’s best interest
- Inadequate supervisory procedures that fail to detect patterns of unsuitable annuity exchanges
- Not considering whether customers have documented need for death benefits or lifetime income features
- Failing to evaluate lower-cost or lower-risk alternatives
- Recommending the same replacement annuity to customers with different investment objectives
If you were advised to exchange or purchase a variable annuity and subsequently suffered losses, you may have a Reg BI violation claim, particularly if the costs, risks, and alternatives were not properly evaluated and disclosed.
How We Help Investors Recover Losses
At Varnavides Law, we represent investors in FINRA arbitration claims against broker-dealers who violate Reg BI. Our approach to Reg BI cases includes:
Thorough Case Evaluation
We analyze your account statements, trade confirmations, and other records to identify potential Reg BI violations. This includes evaluating:
- Whether recommendations matched your documented investment profile
- The suitability of specific products recommended
- Whether reasonable alternatives were considered
- Evidence of undisclosed conflicts of interest
- Trading patterns that may indicate excessive activity
Insider Knowledge of Broker-Dealer Defenses
Gary Varnavides spent 10 years at Sichenzia Ross Ference LLP defending broker-dealers in regulatory matters and investor disputes. This background provides crucial insight into how firms defend against Reg BI allegations and where their arguments are weakest.
Having defended broker-dealers, Gary understands the compliance systems, supervisory procedures, and documentation practices that firms rely upon. This knowledge helps us identify failures that demonstrate Reg BI violations and counter defense strategies effectively.
FINRA Arbitration Representation
Most brokerage account agreements contain mandatory arbitration clauses requiring disputes to be resolved through FINRA arbitration rather than court. We handle all aspects of the arbitration process, including:
- Filing the statement of claim
- Discovery and document requests
- Depositions and witness preparation
- Arbitration hearings
- Post-hearing procedures
Pursuing a Reg BI Claim Through FINRA Arbitration
FINRA arbitration provides an efficient forum for investors to pursue claims against broker-dealers for Reg BI violations. The process offers several advantages over traditional litigation.
| Aspect | FINRA Arbitration | Court Litigation |
|---|---|---|
| Timeline | Typically 12-16 months | Often 2-4 years or more |
| Cost | Generally lower filing fees | Higher court costs and expenses |
| Discovery | Streamlined process | Extensive and time-consuming |
| Decision Makers | Arbitrators with securities industry knowledge | Judge or jury without specialized expertise |
| Award Enforcement | Must be paid within 30 days of receipt (absent a timely vacatur motion) (FINRA Rule 12904(j)) | May require additional enforcement proceedings |
Under FINRA Rule 12904(j), arbitration awards must be paid within 30 days of receipt unless a motion to vacate has been filed with a court of competent jurisdiction. Brokers or firms that fail to comply are subject to suspension proceedings under FINRA Rule 9554, which authorizes FINRA to issue a written notice of non-compliance; if the failure to comply is not remedied within 21 days of service of that notice, suspension or cancellation of membership becomes effective. This two-rule enforcement mechanism — a clear payment deadline followed by an expedited suspension procedure — provides important protection for successful claimants.
Damages and Time Limits for Reg BI Claims
Investors who prevail in Reg BI violation claims may recover various forms of compensation:
- Compensatory damages: The actual investment losses attributable to the violation
- Out-of-pocket losses: Excessive fees, commissions, and costs paid due to unsuitable recommendations
- Well-managed account damages: The difference between actual performance and what a properly managed account would have earned
- Interest: Pre-judgment and post-judgment interest on losses
- Costs and fees: Arbitration costs, expert witness fees, and in some cases attorney fees
FINRA Arbitration Eligibility Window
Time limits apply to Reg BI violation claims. Under FINRA Rule 12206(a), claims are ineligible for arbitration where more than six years have elapsed from the occurrence or event giving rise to the dispute. Note that Rule 12206 is an eligibility rule, not a statute of limitations — the underlying claim may still exist under state or federal law, but FINRA arbitration will not be available. Other limitation periods may also apply depending on the specific legal theories asserted.
Because Reg BI only took effect on June 30, 2020, all potential Reg BI violations have occurred since June 30, 2020 — within the past six years. Nevertheless, waiting to pursue a claim can result in lost evidence, faded memories, and other complications that weaken your case. If you believe your broker violated Reg BI’s Care Obligation, Disclosure Obligation, Conflict of Interest Obligation, or Compliance Obligation, contact an attorney promptly to evaluate your claim and preserve your legal rights.
Frequently Asked Questions About Reg BI Violations
What is Reg BI and when did it take effect?
Reg BI (17 C.F.R. § 240.15l-1) is an SEC rule requiring broker-dealers to act in the best interest of retail customers when making investment recommendations. It became effective on June 30, 2020, and applies to all recommendations made after that date. The rule establishes four obligations: Disclosure Obligation, Care Obligation, Conflict of Interest Obligation, and Compliance Obligation.
How is Reg BI different from the old suitability standard?
The old suitability standard only required brokers to have a reasonable basis for believing an investment was suitable for the customer. Reg BI goes further: the Care Obligation requires brokers to act in the customer’s best interest, consider reasonable alternatives, and not place their own interests ahead of the customer. The SEC adopted Reg BI as a separate standard — drawing from fiduciary principles but applied at the time of recommendation, distinct from the ongoing fiduciary duty owed by investment advisers under the Investment Advisers Act of 1940.
What are the most common Reg BI violations?
Care Obligation violations are the most common, including excessive trading (churning), unsuitable investment recommendations, recommending complex products without proper analysis, and failing to consider lower-cost alternatives. Disclosure Obligation violations involving hidden compensation and Conflict of Interest Obligation failures involving proprietary product bias are also frequently alleged.
Can I sue my broker for a Reg BI violation?
Most brokerage agreements require disputes to be resolved through FINRA arbitration rather than court. While this is technically not a “lawsuit,” FINRA arbitration provides an efficient process for pursuing claims arising from Reg BI’s Care Obligation and Disclosure Obligation failures. An experienced securities attorney can file an arbitration claim on your behalf.
How long do I have to file a Reg BI claim?
Under FINRA Rule 12206(a), arbitration claims are ineligible where more than six years have elapsed from the events giving rise to the dispute. Since Reg BI took effect in June 2020, all potential Care Obligation and Compliance Obligation violations occurred since June 30, 2020 — within the past six years. The six-year FINRA eligibility period and any applicable statute of limitations — such as the two-year discovery period and five-year repose under 28 U.S.C. § 1658(b) for federal securities claims, or the five-year statute of limitations under California Corporations Code § 25506 (measured from the act or transaction, subject to a two-year discovery rule) — run on independent clocks. A claim may remain eligible under FINRA Rule 12206 while the underlying SOL has lapsed, or vice versa. Prompt evaluation of both is essential. However, waiting to file can harm your case, so prompt action is advisable.
What evidence do I need for a Reg BI violation claim?
Important evidence includes account statements, trade confirmations, new account forms documenting your investment profile, correspondence with your broker, Form CRS (customer relationship summary), and any other documents showing what was recommended and whether the broker satisfied the Care Obligation, Disclosure Obligation, and Conflict of Interest Obligation requirements. An attorney can help you gather and analyze this evidence.
What damages can I recover for a Reg BI violation?
Potential damages include compensatory damages for investment losses, out-of-pocket losses for excessive fees and commissions, well-managed account damages, interest, and in some cases arbitration costs and attorney fees. The specific damages available depend on which Care Obligation or Disclosure Obligation violations are proven and the facts of your case.
Does Reg BI apply to my investment adviser?
No, Reg BI’s Care Obligation, Disclosure Obligation, Conflict of Interest Obligation, and Compliance Obligation apply specifically to broker-dealers and their registered representatives. Investment advisers registered under the Investment Advisers Act of 1940 are held to a fiduciary standard. Many financial professionals are dually registered, so the applicable standard depends on which capacity they were acting in when making the recommendation.
Contact a Reg BI Violation Lawyer
If you suffered investment losses due to Care Obligation violations, Disclosure Obligation failures, or other broker misconduct after June 30, 2020, you may have a Reg BI violation claim under 17 C.F.R. § 240.15l-1. The dramatic increase in Reg BI claims reflects growing recognition that investors have powerful new protections under this regulation.
Gary Varnavides brings a unique perspective to Reg BI cases. That decade inside broker-dealer compliance frameworks, supervisory systems, and defense playbooks now works entirely on the investor side. He uses that insider knowledge to identify the exact Compliance Obligation gaps and Care Obligation failures in firm procedures that establish Reg BI liability and to counter the arguments firms use most effectively.
Fee Structure
We handle most Reg BI violation cases on a contingency fee basis. This means no upfront attorney fees, and we only get paid if we recover money for you. The fee percentage will be discussed during your free consultation. You remain responsible for case costs such as filing fees, expert witnesses, and deposition transcripts.
Schedule a Free Consultation
Contact Varnavides Law to discuss your potential Reg BI violation claim. We offer free consultations and handle most cases on a contingency fee basis.
